Jeremy Warner's Outlook: Ombudsman's Equitable Life findings are a further blow to public finances

The problems just keep on piling up for our beleaguered Prime Minister, Gordon Brown. The Government has repeatedly managed to delay the publication of a damning report on the demise of Equitable Life from the Parliamentary Ombudsman, Ann Abraham, but finally the game is up, and next week she's expected formally to declare the Government guilty of maladministration.

This doesn't necessarily mean the Treasury will have to pay out billions of pounds in compensation to disadvantaged policyholders. The obligation to compensate is only a moral one. When the public finances are as far up the creak as at the moment, moral obligations tend to go out the window. All the same, ministers may find it hard to resist.

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On a finding of maladministration, the Government has historically paid out more often than not, but if the liability is a big one, as in this case, the authorities tend to dig their heels in. Policyholders will nonetheless draw comfort from the fact that, in the case of workers who lost their pensions after their companies became insolvent, ministers were eventually shamed and sued into paying up.

A precedent was thereby set, but it was very much under the threat of rebellion by MPs. Backbench pressure may not be so intense in this case. The stereotypical Equitable Life policyholder is a retired judge or lawyer. No doubt, there are those living in near penury as a result of the debacle of guaranteed annuity rates, but they don't pull the heart strings, or command the ballot box, in quite the same way as the deprived pensioners.

What's more, Equitable Life was actually only the most high profile of a number of life fund closures of around the same time, some of which had equally dire consequences for their policyholders but have not received the same cause célèbre treatment.

Even so, the Government will face a storm of protest if it tries to resist the Ombudsman's findings. Much of what went wrong at Equitable Life pre-dates the current Labour Government and its reforms of financial regulation.

The real mischief in regulation goes back to the days when the Department of Trade and Industry and the Government Actuary were the assigned supervisors. This is when the key mistakes were made. The die was cast long before the FSA came into existence. But for the pigheadedness of the courts, which upheld the guaranteed annuity rates of some policyholders, the affair might in any case have had a happier ending.

Yet the point at which Equitable Life was actually forced to close up shop occurred under the Financial Services Authority's watch, and, in its latter stages, the debacle could plainly have been much better handled.

Oppressive solvency regulation also greatly exaggerated subsequent shortfalls by forcing Equitable into a highly restrictive investment strategy. Labour's showpiece regulatory creation cannot entirely escape blame, and indeed it too is said to have been found guilty of key faults in the Ombudsman's findings. Coming on top of the furore over Northern Rock, the timing of the Ombudsman's report is therefore doubly embarrassing for the Government.

Yet it is affordability that is the real problem. As things stand, the Government simply hasn't got the money.